-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WGgzEWxKB4t9hUa5xupU5YS+3WpU0BtP5xhA4jsDSXppO4GIj1gvDzqtarJjtPpW 8eFO0CSaDrwL0RFr0CBeeg== 0000898430-96-003938.txt : 19960819 0000898430-96-003938.hdr.sgml : 19960819 ACCESSION NUMBER: 0000898430-96-003938 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960816 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBR BREWING CO INC CENTRAL INDEX KEY: 0000846012 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 650145422 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-26617-A FILM NUMBER: 96617184 BUSINESS ADDRESS: STREET 1: 433 N CAMDEN STREET 2: SUITE 1200 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3102745172 MAIL ADDRESS: STREET 1: 433 N CAMDEN STREET 2: SUITE 1200 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL SWEEPSTAKES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PETROVEST INC DATE OF NAME CHANGE: 19910925 FORMER COMPANY: FORMER CONFORMED NAME: VIDEO PROMOTIONS INC DATE OF NAME CHANGE: 19891213 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 ------------- [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File Number 33-26617A --------- CBR BREWING COMPANY, INC. ------------------------------------- (Exact name of registrant as specified in its charter) Florida 65-0145422 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification Number) 433 North Camden, Suite 1200 Beverly Hills, California 90210 - ------------------------------- ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 274-5172 -------------- Not applicable -------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Common shares outstanding at June 30, 1996 Class A 5,000,013 Class B 3,000,000 Total sequentially numbered pages in this document: 26 1 CBR BREWING COMPANY, INC. AND SUBSIDIARIES ------------------------------------------ INDEX ----- PART I FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets (unaudited)- June 30, 1996 and December 31, 1995 Condensed Consolidated Statements of Income (unaudited)- Three months and six months ended June 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements (unaudited) - Three months and six months ended June 30, 1996 and 1995 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K SIGNATURES 2 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, 1996 December 31, 1995 --------------------------- ---------------------------- RMB USD RMB USD ----------- ----------- ------------ ----------- ASSETS Current assets: Cash 71,666,560 8,610,664 57,448,305 6,902,356 Accounts receivable 166,053,990 19,951,218 158,677,644 19,064,958 Inventories (Note 3) 97,980,140 11,772,215 56,838,801 6,829,124 Prepayments, deposits and other receivables 9,101,819 1,093,574 7,423,161 891,885 Due from related companies 7,191,895 864,099 46,411,779 5,576,328 ----------- ---------- ----------- ---------- Total current assets 351,994,404 42,291,770 326,799,690 39,264,651 Deferred tax assets - - 48,444 5,820 Property, plant and equipment, net 245,492,536 29,495,679 197,308,264 23,706,388 Interest in an associated company (Note 5) 191,436,128 23,000,857 222,742,476 26,762,282 ----------- ---------- ----------- ---------- Total assets 788,923,068 94,788,306 746,898,874 89,739,141 =========== ========== =========== ==========
(continued) 3 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
June 30, 1996 December 31, 1995 -------------------------- --------------------------- RMB USD RMB USD ----------- ---------- ----------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank loans 36,074,400 4,334,303 32,574,400 3,913,781 Obligation under capital lease 4,630,048 556,296 5,634,848 677,021 Deposits received from customers 74,272,742 8,923,794 123,817,626 14,876,562 Accounts payable and accrued liabilities 130,394,453 15,666,761 56,279,181 6,761,887 Due to related companies 31,269,657 3,757,018 18,629,685 2,238,338 Due to an associated company 129,059,602 15,506,380 154,185,606 18,525,244 Sales taxes payable 47,470,939 5,703,585 33,233,897 3,993,019 ----------- ---------- ----------- ---------- Total current liabilities 453,171,841 54,448,137 424,355,243 50,985,852 Long term liabilities: Deferred tax liabilities 451,555 54,254 - - Shareholder's loan (Note 4) 73,794,948 8,866,388 73,794,948 8,866,388 Obligation under capital lease 24,897,291 2,991,384 24,897,291 2,991,384 ----------- ---------- ----------- ---------- Total long term liabilities 99,143,794 11,912,026 98,692,239 11,857,772 Minority interests 100,558,369 12,081,986 96,474,719 11,591,339 Shareholders' equity: Capital stock - common stock Class A par value US$0.0001 each, 90,000,000 shares authorized, 5,000,013 shares outstanding 4,265 512 4,265 512 Class B par value US$0.0001 each, 10,000,000 shares authorized, 3,000,000 shares outstanding 2,559 308 2,559 308 Additional paid-in capital 104,030,194 12,499,122 104,030,194 12,499,122 Statutory surplus and collective welfare funds 2,159,610 259,475 2,159,613 259,475 Retained earnings 29,852,436 3,586,740 21,180,042 2,544,761 ----------- ---------- ----------- ---------- Total shareholders' equity 136,049,064 16,346,157 127,376,673 15,304,178 ----------- ---------- ----------- ---------- Total liabilities and shareholders' equity 788,923,068 94,788,306 746,898,874 89,739,141 =========== ========== =========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Three Months Ended Six Months Ended Ended Six Months Ended June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995 ---------------------------- --------------------------- ------------- ------------- RMB USD RMB USD RMB RMB ------------- ------------ ------------- ----------- ------------- ------------- (As Adjusted (As Adjusted - Note 2) - Note 2) Sales 359,976,876 43,250,856 643,570,569 77,324,350 99,583,814 134,949,038 Sales taxes (6,318,003) (759,102) (12,379,930) (1,487,436) (4,703,000) (7,573,702) ------------ ----------- ------------ ----------- ----------- ------------ Sales, net of sales taxes 353,658,873 42,491,754 631,190,639 75,836,914 94,880,814 127,375,336 Costs of sales, including inventory purchased from related companies of RMB 214,570,411; RMB 422,930,227; RMB 21,920,274 and RMB 26,817,648, respectively; and royalty fee paid to related company of RMB 2,356,675; RMB 4,133,561; RMB 1,241,406 and RMB 1,525,521, respectively (297,959,607) (35,799,544) (531,984,151) (63,917,355) (81,164,526) (106,438,508) ------------ ----------- ------------ ----------- ----------- ------------ Gross profit 55,699,266 6,692,210 99,206,488 11,919,559 13,716,288 20,936,828 Selling and administrative expenses, including advertising expenses paid or payable to related company of RMB 20,500,000; RMB 33,406,488; RMB 4,380,000 and RMB 4,380,000, respectively (45,222,589) (5,433,448) (81,776,073) (9,825,312) (12,242,904) (19,481,983) ------------ ----------- ------------ ----------- ----------- ------------ Operating Income 10,476,677 1,258,762 17,430,415 2,094,247 1,473,384 1,454,845 Foreign exchange gains 170,340 20,466 159,751 19,194 1,374,714 1,552,106 Other income (expense): Sales tax refund - - - - - 1,375,000 Sales of scrap - - - - 499,055 736,494 Interest expense, including interest expense paid or payable to related companies of RMB 2,889,424; RMB 6,599,712; nil and nil, respectively (7,005,251) (841,674) (12,825,652) (1,540,989) (2,531,964) (4,361,735) ------------ ----------- ------------ ----------- ----------- ------------ Income before income taxes 3,641,766 437,554 4,764,514 572,452 815,189 756,710 Income taxes (250,000) (30,037) (500,000) (60,075) - - ------------ ----------- ------------ ----------- ----------- ------------ Income before equity in earnings of an associated company 3,391,766 407,517 4,264,514 512,377 815,189 756,710 Equity in earnings of an associated company 4,480,286 538,302 8,491,530 1,020,248 6,550,090 19,776,478 ------------ ----------- ------------ ----------- ----------- ------------ Net income before minority interests 7,872,052 945,819 12,756,044 1,532,625 7,365,279 20,533,188 Minority interests (2,871,495) (345,007) (4,083,650) (490,646) (3,483,014) (10,323,826) ------------ ----------- ------------ ----------- ----------- ------------ Net income for the period 5,000,557 900,812 8,672,394 1,041,979 3,882,265 10,209,362 ============ =========== ============ =========== =========== ============ Net income per common share 0.63 0.08 1.08 0.13 0.49 1.28 ============ =========== ============ =========== =========== ============ Weighted average shares of common stock 8,000,013 8,000,013 8,000,013 8,000,013 8,000,013 8,000,013 ============ =========== ============ =========== =========== ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Six Months Ended June 30, 1996 June 30, 1995 ------------------------------- ------------- RMB USD RMB ----------- ----------- -------------- (As adjusted - Note 2) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income 8,672,394 1,041,979 10,209,362 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interests 4,083,650 490,646 10,323,826 Equity in earnings of an associated company (8,491,530) (1,020,249) (19,776,478) Depreciation and amortization 13,221,251 1,588,521 6,291,307 Allowance for doubtful accounts 1,330,000 159,798 - Income taxes 500,000 60,074 - Foreign exchange gains (159,751) (19,194) (1,552,106) ----------- ---------- ----------- 19,156,014 2,301,575 5,495,911 Changes in working capital: (Increase) Decrease in - Accounts receivable (8,136,346) (977,574) (61,066,484) Inventories (41,141,339) (4,943,090) (14,904,323) Prepayments, deposits and other receivables (1,678,658) (201,689) (5,592,206) Increase (Decrease) in - Accounts payable and accrued liabilities 74,115,272 8,904,875 41,031,001 Deposits received from customers (49,544,884) (5,952,767) 27,796,211 Due to an associated company (25,126,004) (3,018,863) - Sales taxes payable 14,237,042 1,710,566 9,812,305 ----------- ---------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (18,118,903) (2,176,967) 2,572,415 ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (61,815,776) (7,427,103) (14,599,896) Due from related companies 39,219,884 4,712,230 (31,960) Dividend from an associated company 39,797,878 4,781,674 28,657,828 ----------- ---------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES 17,201,986 2,066,801 14,025,972 ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of other loans - - (8,000,000) New other loans - - 3,000,000 Increase in shareholder's loan - - 1,298,395 New bank loans 3,500,000 420,521 8,000,000 Due to related companies 12,639,972 1,518,680 (5,430,655) Repayment of obligation under capital lease (1,004,800 (120,726) (1,751,325) ----------- ---------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,135,172 1,818,475 (2,883,585) ----------- ---------- ----------- Net increase in cash 14,218,255 1,708,309 13,714,802 Cash at beginning of period 57,448,305 6,902,355 7,397,927 ----------- ---------- ----------- Cash at end of period 71,666,560 8,610,664 21,112,729 =========== ========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION Organization - CBR Brewing Company, Inc. (the "Company," which term shall - ------------ include, when the context so requires, its subsidiaries and affiliates), formerly known as Natural Fuels, Inc. and National Sweepstakes, Inc., was originally incorporated as Video Promotions, Inc. on April 20, 1988 under the laws of the State of Florida. The Company adopted its current name on March 15, 1995. Reverse Acquisition - For a period of time prior to December 16, 1994, the - ------------------- business of the Company was devoted to seeking potential acquisition or merger opportunities. On December 16, 1994, the Company acquired all of the outstanding shares of capital stock of High Worth Holdings, Ltd., a British Virgin Islands corporation ("Holdings"), from Oriental Win Holdings Ltd. ("Oriental Win") and Goldchamp Ltd. ('Goldchamp") in exchange for 3,960,000 shares and 240,000 shares of the Company's Class A Common Stock issued to Oriental Win and Goldchamp, respectively, and 3,000,000 shares of the Company's Class B Common Stock issued to Oriental Win. The shares of Class B Common Stock carry two votes per share but are otherwise equivalent to the Class A Common Stock. In addition, the Company issued an aggregate of 600,000 shares of Class A Common Stock to various parties for consulting services in connection with the acquisition. The shares of Class A and Class B Common Stock issued in conjunction with the acquisition represent approximately 98.1% of the issued and outstanding shares of the Company, after all shares were issued and a 1-for-22 reverse stock split which was effected on November 22, 1994. The Company's subsidiaries and affiliates manage and contractually have the right to control all of the production and sale of Pabst Blue Ribbon beer in the People's Republic of China ("China" or the "PRC"). Holdings is a holding company that was formed solely to effect the acquisition of Zhaoqing Blue Ribbon High Worth Brewery, Ltd., a Sino-foreign joint venture ("High Worth JV"), which was registered in the PRC on July 2, 1994, in which Guangdong Blue Ribbon Group Co. Ltd. ("Guangdong Blue Ribbon") owns a 40% interest and Holdings owns a 60% interest. High Worth JV owns a 100% interest in Zhaoqing Brewery, a PRC company, which is engaged in the brewery business in China. Zhaoqing Brewery also owns a 40% interest in Zhaoqing Blue Ribbon Brewery Noble, Ltd., a Sino-foreign joint venture ("Noble Brewery"), which is also engaged in the brewery business in China. Noble Brewery is a Sino-foreign equity joint venture enterprise registered in the PRC on October 8, 1993, in which Goldjinsheng Holding Ltd., an unrelated party, and Zhaoqing Brewery hold 60% and 40% interests, respectively. Accordingly, 7 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued) the Company owns effective interests of 60% in Zhaoqing Brewery and 24% in Noble Brewery. The brewery operations are located in Zhaoqing City, which is situated approximately 100 miles from Hong Kong in the Guangdong Province of China. Substantially all of the beer currently sold by the Company is now marketed under the Pabst Blue Ribbon label. During 1995, Zhaoqing Blue Ribbon Marketing Company, a PRC company (the "Marketing Company"), was established to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. Apart from the investment in High Worth JV which was partly financed by a loan from Oriental Win, Holdings has no other significant assets or liabilities. On October 31, 1994, prior to the reverse acquisition effective December 16, 1994, High Worth JV acquired a 100% interest in Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, for approximately USD20,000,000. Prior to the acquisition of the Zhaoqing Brewery by High Worth JV, Zhaoqing Brewery was a wholly-owned subsidiary of Guangdong Blue Ribbon. For accounting purposes, the acquisition of Holdings by the Company has been treated as a recapitalization of Holdings with Holdings as the acquiror (reverse acquisition). Accordingly, the historical financial statements prior to December 16, 1994 are those of Holdings. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The acquisition on October 31, 1994 of Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, has been accounted for under the purchase method of accounting. Since High Worth JV had no operations prior to this acquisition, consolidated financial statements have been prepared commencing October 31, 1994, to reflect the post-acquisition consolidated results of the operations of Zhaoqing Brewery and Noble Brewery attributable to the Company. The consolidated financial statements include the results of operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under the equity method of accounting for investments. All material intercompany accounts and transactions are eliminated on consolidation. The consolidated financial statements have been prepared on a going concern basis notwithstanding that the Company has a net current liability position at December 31, 1995 and June 30, 1996, 8 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued) as Oriental Win, the Company's principal shareholder, and Guangdong Blue Ribbon, a related party, have undertaken to provide continuing financial support. Foreign Currency Translation - In preparing the consolidated financial statements, the financial statements of the Company are measured using Renminbi ("RMB") as the functional currency. All foreign currency transactions are translated into RMB using the applicable rates of exchange, as quoted by the People's Bank of China (the "unified exchange rate"). Monetary assets and liabilities denominated in foreign currencies have been translated into RMB using the unified exchange rate prevailing at the balance sheet dates. The resulting exchange gains or losses have been credited or charged to the statements of income for the periods in which they occur. The Company's share capital is denominated in United States dollars ("USD") and the reporting currency is the RMB. For financial reporting purposes, the USD share capital amounts have been translated into RMB at the applicable rates prevailing on the transaction dates. For financial reporting purposes, translation of amounts from RMB into United States dollars ("USD") for the convenience of the reader has been made at the rate of exchange as quoted by the People's Bank of China on June 30, 1996, of USD1.00 = RMB8.32. No representation is made that the RMB amounts could have been, or could be, converted into USD at that rate or at any other rate. NOTE 2 -- COMMENTS The accompanying condensed consolidated financial statements are unaudited but, in the opinion of the management of the Company, contain all adjustments necessary to present fairly the financial position at June 30, 1996, the results of operations for the three months and six months ended June 30, 1996 and 1995, and the changes in cash flows for the six months ended June 30, 1996 and 1995. These adjustments are of a normal recurring nature. The consolidated balance sheet as of December 31, 1995 is derived from the Company's audited financial statements. Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10- K for the fiscal year ended December 31, 1995, as filed with the Securities and Exchange Commission. 9 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 2 -- COMMENTS (continued) The results of operations for the three months and six months ended June 30, 1996 are not necessary indicative of the results of operations to be expected for the full fiscal year ending December 31, 1996. The calculation of net income per share is based on the weighted average number of shares of Class A and Class B Common Stock issued and outstanding during each respective period. In conjunction with the audit of the Company's consolidated financial statements as of and for the year ended December 31, 1995, the Company identified certain year-end adjustments properly allocable to prior 1995 interim periods, including additional charges by Zhaoqing Brewery for the staff welfare fund and by the Marketing Company for the provision for doubtful accounts and accrued liability for sales commissions. With respect to Noble Brewery, an unconsolidated subsidiary, additional charges due to improper cut-offs, unrecorded expenses and account misclassifications resulted in an understatement of cost of sales and of selling, general and administrative expenses. Accordingly, the Company has restated the accompanying statements of income and cash flows for the three months and six months ended June 30, 1995 to reflect these adjustments.
As Previously Reported As Adjusted ---------------------- ----------- Three Months Ended June 30, 1995: RMB RMB - -------------------------------- --- --- Sales, net of sales taxes 94,880,814 94,880,814 Gross profit 13,716,288 13,716,288 Operating income 2,944,896 1,473,384 Net income 6,371,369 3,882,265 Net income per common share 0.80 0.49 As Previously Reported As Adjusted ---------------------- ----------- Six Months Ended June 30, 1995: RMB RMB - ------------------------------ --- --- Sales, net of sales taxes 127,805,326 127,375,336 Gross profit 21,117,923 20,936,828 Operating income 3,993,816 1,454,845 Net income 15,042,106 10,209,362 Net income per common share 1.88 1.28
10 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 3 -- INVENTORIES Inventories consisted of the following at June 30, 1996 and December 31, 1995:
June 30, 1996 December 31, 1995 ------------------------ ---------------------- RMB USD RMB USD --- --- --- --- Raw materials 17,688,490 2,125,254 14,154,395 1,700,636 Work in progress 8,019,558 963,542 3,713,686 446,197 Finished goods 72,272,092 8,683,419 38,970,720 4,682,291 ---------- ---------- ---------- --------- 97,980,140 11,772,215 56,838,801 6,829,124 ========== ========== ========== =========
NOTE 4 -- SHAREHOLDER'S LOAN The shareholder's loan of RMB 73,794,948 (USD8,866,388) at June 30, 1996 and December 31, 1995 was provided by Oriental Win in connection with the acquisition of High Worth JV by Holdings. The loan is denominated in USD, is unsecured, interest free and is not due and payable unless alternate long term debt or equity funds are available to the Company. NOTE 5 -- INTEREST IN AN ASSOCIATED COMPANY The unlisted investment consists of the Company's 40% equity interest in Noble Brewery held by a 60% owned subsidiary as follows: 11 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 5 -- INTEREST IN AN ASSOCIATED COMPANY (continued)
RMB ----------- Unlisted investment, at cost, October 31, 1994 209,361,595 The Company's share of earnings and dividends of an associated company: Earnings - Two months ended December 31, 1994 7,812,392 For the year ended December 31, 1995 34,213,058 Three months ended March 31, 1996 4,011,244 Three months ended June 30, 1996 4,480,286 Dividends - Declared and paid during 1995 (28,644,569) Declared and paid during 1996 (39,797,878) ----------- Unlisted investment, June 30, 1996 191,436,128 ===========
The condensed statements of operations of Noble Brewery for the three months and six months ended June 30, 1996 and 1995 are as follows:
Three Months Three Months Ended Six Months Ended Ended Six Months Ended June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995 ------------------------ ------------------------ -------------- ----------------- RMB USD RMB USD RMB RMB ----------- ---------- ----------- ---------- -------------- ----------------- (As Adjusted (As Adjusted - Note 2) - Note 2) Sales, net of sales taxes 180,540,618 21,691,722 342,594,136 41,162,338 131,295,743 362,873,489 =========== ========== =========== ========== =========== =========== Net income 18,405,386 2,211,388 35,168,171 4,225,420 16,375,226 49,441,195 =========== ========== =========== ========== =========== =========== The Company's share of net income after deduction of unrealised intercompany profit 4,480,286 538,302 8,491,530 1,020,248 6,550,090 19,776,478 =========== ========== =========== ========== =========== ===========
12 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NOTE 6 -- MARKETING COMPANY The Marketing Company was established during 1995 to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. The Marketing Company also sells mineral water and non-carbonated soft drinks bearing the Blue Ribbon label produced by Guangdong Blue Ribbon. In May 1996, the Marketing Company commenced distribution of a red wine product labelled "Blue Eagle" which was developed by Guangdong Blue Ribbon. Sales of this product through June 30, 1996 have been insignificant. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The consolidated financial statements include the results of operations of the Marketing Company on a consolidated basis. The Marketing Company commenced operations on April 1, 1995. The commencement of the Marketing Company's operations, which are presented on a consolidated basis, resulted in a significant change in the Company's operating structure and income statement presentation during 1995. Accordingly, a comparison of results of operations for three months and six months ended June 30, 1996 to results of operations for the three months and six months ended June 30, 1995, is not necessarily meaningful. 13 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview: Effective December 16, 1994, the Company acquired Holdings, which, through its subsidiaries and affiliates, manages and has the contractual right to control all of the production and sale of Pabst Blue Ribbon beer in China. Holdings is a holding company which was formed solely to effect the acquisition of a 60% interest in High Worth JV. On October 31, 1994, High Worth JV acquired a 100% interest in Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery. The acquisition of Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, has been accounted for under the purchase method of accounting. The consolidated financial statements include the results of operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under the equity method of accounting for investments, commencing October 31, 1994, to reflect the post-acquisition consolidated results of operations of Zhaoqing Brewery and Noble Brewery attributable to the Company. For accounting purposes, the acquisition of Holdings by the Company has been treated as a recapitalization of Holdings with Holdings as the acquiror (reverse acquisition). Accordingly, the historical financial statements prior to December 16, 1994 are those of Holdings. During 1995, the Marketing Company was established to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. The Marketing Company also sells mineral water and non-carbonated soft drinks bearing the Blue Ribbon label produced by Guangdong Blue Ribbon. In May 1996, the Marketing Company commenced distribution of a red wine product labelled "Blue Eagle" which was developed by Guangdong Blue Ribbon. Sales of this product through June 30, 1996 have been insignificant. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The Marketing Company generally requires a 50% cash deposit from its customers as security. However, for those customers located in Guangdong Province, the deposit policy has been replaced by cash-on- delivery or pre-approved credit terms. The consolidated financial statements include the results of operations of the Marketing Company on a consolidated basis. Business: Pabst Blue Ribbon beer is distributed and sold throughout China. In general, the beer market in China is still undergoing a rapid growth stage. There is a substantial difference in the price at which local or regional beer is sold in China as compared to the price of foreign or premium brands of beer. On average, a 640 ml. bottle of local or regional beer would typically sell for 1 - 2 RMB, as compared to a foreign or premium beer which would sell for 4 - 6 RMB. 14 The beer industry in China is seasonal, with sales at their lowest in the months of October and November, and at their highest in the months of March through September. The Company's brewing facilities consist of the following: Zhaoqing Brewery: The original facilities of Zhaoqing Brewery were ---------------- constructed between 1978 and 1980 with annual production capacity based on old brewing technology of 50,000 metric tons or 425,000 barrels of beer. With the implementation of the new brewing technology and the purchase of additional equipment, Zhaoqing Brewery reached an annual production capacity of 100,000 metric tons or 850,000 barrels by the end of 1995. Prior to March 1995, Zhaoqing Brewery had produced exclusively domestic brands of beer. In mid-1994, with the assistance of Pabst Brewing Company, Zhaoqing Brewery commenced the conversion and refinement of its original facilities and adopted a new brewing technology in order to produce beer under the Pabst Blue Ribbon label. During March 1995, Zhaoqing Brewery discontinued production of all domestic brands and commenced exclusive production of Pabst Blue Ribbon beer on a full-scale basis. However, beer that does not meet Pabst Blue Ribbon quality standards is generally packaged and distributed as local brand beer. Noble Brewery: The original facilities of Noble Brewery were constructed ------------- between 1988 and 1990 with annual production capacity of approximately 80,000 metric tons or 680,000 barrels of beer. During July 1994, a second brewing facility was completed, which increased annual production capacity by an additional 120,000 metric tons or 1,020,000 barrels of beer. The second brewing facility commenced full-scale production during late 1994. Noble Brewery has produced Pabst Blue Ribbon beer exclusively since it commenced operations. Consolidated Results of Operations: Zhaoqing Brewery and Noble Brewery commenced distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The commencement of the Marketing Company's operations, which are presented on a consolidated basis, resulted in a significant change in the Company's operating structure and income statement presentation during 1995. Accordingly, a comparison of results of operations for the three months and six months ended June 30, 1996 to results of operations for the three months and six months ended June 30, 1995 is not necessarily meaningful. Three Months Ended June 30, 1996 and 1995 - Sales: During the three months ended June 30, 1996, Zhaoqing Brewery produced 24,409 metric tons and sold 24,436 metric tons of beer, of which 507 metric tons (2.1%) were local brand beer and 23,929 metric tons (97.9%) were Pabst Blue Ribbon beer. During the three months ended June 30, 1995, Zhaoqing Brewery produced 13,103 metric tons and sold 14,694 metric tons, of which 517 metric tons (3.5%) were local brand beer and 14,177 metric tons (96.5%) were Pabst Blue Ribbon beer. As a result of increased demand for Pabst Blue Ribbon beer, in conjunction with the implementation of the new brewing technology and the installation of new equipment to increase the production capacity at the end of 1995, total beer sold increased by 9,742 metric tons or 66.3% from 1995 to 1996. 15 During the three months ended June 30, 1996, Noble Brewery produced 42,255 metric tons and sold 42,269 metric tons of beer, as compared to 43,237 metric tons of beer produced and 28,562 metric tons of beer sold for the three months ended June 30, 1995. As a result of increased demand for Pabst Blue Ribbon beer, total beer sold increased by 13,707 metric tons or 48.0% from 1995 to 1996. For the three months ended June 30, 1996, net sales, all of which were conducted through the Marketing Company, were RMB 353,658,873, of which RMB 330,743,618 (93.5%) were attributable to beer sales and RMB 22,915,255 (6.5%) were attributable to the sales of mineral water, non-carbonated soft drinks and red wine. During the three months ended June 30, 1996, the Marketing Company purchased RMB 191,262,164 of beer products from Noble Brewery for resale, and RMB 23,308,247 of mineral water, non-carbonated soft drinks and red wine from Guangdong Blue Ribbon for resale. Approximately 99.7% of total beer sales during the three months ended June 30, 1996 were provided from the sale and distribution of products under the Pabst Blue Ribbon brand name. For the three months ended June 30, 1995, net sales were RMB 94,880,814, of which 76% were attributable to beer sales and 24% were attributable to the sales of mineral water and non-carbonated soft drinks. Gross Profit: For the three months ended March 31, 1996, total gross profit was RMB 55,699,266 or 15.7% of total net sales, and consisted of gross profit from beer sales of RMB 53,955,041 or 16.3% of net sales of beer and gross profit from sales of mineral water, non-carbonated soft drinks and red wine of RMB 1,744,225 or 7.6% of net sales of mineral water, non-carbonated soft drinks and red wine. For the three months ended June 30, 1995, total gross profit was RMB 13,716,288 or 14.5% of total net sales and consisted of gross profit from beer sales of RMB 12,606,685 or 17.5% of net sales of beer and gross profit from sales of mineral water and non-carbonated soft drinks of RMB 1,109,603 or 5% of net sales of mineral water and non-carbonated soft drinks. The Company expects continuing pressure on its gross profit during 1996 as a result of two factors. First, a general softening of consumer demand in China as a result of increasing competition from foreign premium brand beers and the central government's regulatory controls and economic policies. Second, an increase in 1996 raw material and packaging costs in excess of 10%, which, because of the softening of consumer demand, may be difficult for the Company to fully pass on to its customers. Accordingly, the Company introduced a bottle recycling program in early 1996 in an effort to reduce production costs. During July 1996, Renhe Trading Company ("Renhe"), a trading company located in Shenzhen, PRC, commenced importing and distributing U.S.-brewed Pabst Blue Ribbon beer in Southern China, and has advertised widely throughout Southern China that Pabst Brewing Company USA has granted it the exclusive right to distribute U.S.-brewed Pabst Blue Ribbon beer in China. Pabst Brewing Company USA has officially denied granting such authorization. As a result, during July 1996, preliminary indications are that the Company's shipments of Pabst Blue Ribbon beer in Southern China unexpectedly decreased by approximately 15% as compared to June 1996. Accordingly, the Company anticipates that the aforementioned matter will have an adverse effect on the results of operations for the three months ended September 16 30, 1996. The Company's joint venture partner and the exclusive license holder of the Pabst Blue Ribbon brand in China, Guangdong Blue Ribbon, is reviewing and evaluating its legal options to stop the importation of Pabst Blue Ribbon beer into China. Selling and Administrative Expenses: For the three months ended June 30, 1996, selling and administrative expenses were RMB 45,222,589 or 12.8% of net sales, consisting of selling expenses of RMB 33,586,502 and general and administrative expense of RMB 11,636,087. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China, and have been incurred in conjunction with the increase in the production capacity of Zhaoqing Brewery and the increase in sales volume. For the three months ended June 30, 1996, the Company recorded an allowance for doubtful accounts of RMB 570,000 to provide for estimated losses on accounts receivable for the period. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Zhaoqing Brewery's production of Pabst Blue Ribbon beer in April 1995, and has incurred most of the selling expenses since that date. General and administrative costs include the costs associated with the operation of the Company's executive offices, and the legal and accounting costs associated with the operation of a public company. As a result of softening consumer demand and increasing competition from foreign premium brand beers, the Company is implementing a substantially expanded advertising and promotional program in 1996 in order to stimulate consumer demand and maintain the market position of Pabst Blue Ribbon beer in China. Interest Expense: For the three months ended June 30, 1996, interest expense increased by RMB 4,473,287 or 176.7% to RMB 7,005,251, as compared to RMB 2,531,964 for the three months ended June 30, 1995. Interest expense increased in 1996 as compared to 1995 as a result of the increase in bank loans, capital lease obligations and amounts payable to Guangdong Blue Ribbon as a result of its advances for the expansion of Zhaoqing Brewery. Operating Income: For the three months ended June 30, 1996, operating income was RMB 10,476,677 or 3.0% of net sales. For the three months ended June 30, 1995, operating income was RMB 1,473,384 or 1.6% of net sales. Income Taxes: For the three months ended June 30, 1996, income tax expense was RMB 250,000. Although the Company's operations in China were subject to a tax holiday in 1996, deferred income tax of RMB 250,000 were recorded for the three months ended June 30, 1996 as a result of temporary timing differences with respect to accelerated depreciation of property, plant and equipment during the tax exemption period. For the three months ended June 30, 1995, no income tax expense was incurred. Net Income: As a result of increased sales, net income increased to RMB 5,000,557 for the three months ended June 30, 1996, as compared to RMB 3,882,265 for the three months ended June 30, 1995. 17 Six Months Ended June 30, 1996 and 1995 - Sales: During the six months ended June 30, 1996, Zhaoqing Brewery produced 43,040 metric tons and sold 43,020 metric tons of beer, of which 1,021 metric tons (2.4%) were local brand beer and 41,999 metric tons (97.6%) were Pabst Blue Ribbon beer. During the six months ended June 30, 1995, Zhaoqing Brewery produced 23,816 metric tons and sold 25,841 metric tons, of which 8,841 metric tons (34.2%) were local brand beer and 17,000 metric tons (65.8%) were Pabst Blue Ribbon beer. As a result of increased demand for Pabst Blue Ribbon beer, in conjunction with the implementation of the new brewing technology and the installation of new equipment to increase the production capacity at the end of 1995, total beer sold increased by 17,179 metric tons or 66.5% from 1995 to 1996. Of the 11,388 metric tons of local brand beer produced in 1995, 8,841 metric tons (77.6%) were produced during the six months ended June 30, 1995. During the six months ended June 30, 1996, Noble Brewery produced 78,999 metric tons and sold 79,046 metric tons of beer, as compared to 92,845 metric tons of beer produced and 82,477 metric tons of beer sold for the six months ended June 30, 1995. Total beer sold decreased by 3,431 metric tons or 4.2% from 1995 to 1996, as a result of the regulation of sales by the Marketing Company, which purchases beer from the two breweries in accordance with their respective production capacities. The reduction in beer sold by Noble Brewery had the effect of reducing the Company's share of earnings in an associated company for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995. For the six months ended June 30, 1996, net sales, all of which were conducted through the Marketing Company, were RMB 631,190,639, of which RMB 588,167,083 (93.2%) were attributable to beer sales and RMB 43,023,556 (6.8%) were attributable to the sales of mineral water, non-carbonated soft drinks and red wine. During the six months ended June 30, 1996, the Marketing Company purchased RMB 363,025,917 of beer products from Noble Brewery for resale, and RMB 39,760,792 of mineral water, non-carbonated soft drinks and red wine from Guangdong Blue Ribbon for resale. Approximately 99.7% of total beer sales during the six months ended June 30, 1996 were provided from the sale and distribution of products under the Pabst Blue Ribbon brand name. For the six months ended June 30, 1995, net sales were RMB 127,375,336, of which 82% were attributable to beer sales and 18% were attributable to the sales of mineral water and non- carbonated soft drinks. Gross Profit: For the six months ended June 30, 1996, total gross profit was RMB 99,206,488 or 15.7% of total net sales, and consisted of gross profit from beer sales of RMB 95,943,694 or 16.3% of net sales of beer and gross profit from sales of mineral water, non-carbonated soft drinks and red wine of RMB 3,262,794 or 7.6% of net sales of mineral water, non-carbonated soft drinks and red wine. For the six months ended June 30, 1995, total gross profit was RMB 20,936,828 or 16.4% of total net sales and consisted of gross profit from beer sales of RMB 19,827,225 or 19% of net sales of beer and gross profit from sales of mineral water and non-carbonated soft drinks of RMB 1,109,603 or 5% of net sales of mineral water and non-carbonated soft drinks. 18 The Company expects continuing pressure on its gross profit during 1996 as a result of two factors. First, a general softening of consumer demand in China as a result of increasing competition from foreign premium brand beers and the central government's regulatory controls and economic policies. Second, an increase in 1996 raw material and packaging costs in excess of 10%, which, because of the softening of consumer demand, may be difficult for the Company to fully pass on to its customers. Accordingly, the Company introduced a bottle recycling program in early 1996 in an effort to reduce production costs. During July 1996, Renhe Trading Company ("Renhe"), a trading company located in Shenzhen, PRC, commenced importing and distributing U.S.-brewed Pabst Blue Ribbon beer in Southern China, and has advertised widely throughout Southern China that Pabst Brewing Company USA has granted it the exclusive right to distribute U.S.-brewed Pabst Blue Ribbon beer in China. Pabst Brewing Company USA has officially denied granting such authorization. As a result, during July 1996, preliminary indications are that the Company's shipments of Pabst Blue Ribbon beer in Southern China unexpectedly decreased by approximately 15% as compared to June 1996. Accordingly, the Company anticipates that the aforementioned matter will have an adverse effect on the results of operations for the three months ended September 30, 1996. The Company's joint venture partner and the exclusive license holder of the Pabst Blue Ribbon brand in China, Guangdong Blue Ribbon, is reviewing and evaluating its legal options to stop the importation of Pabst Blue Ribbon beer into China. Selling and Administrative Expenses: For the six months ended June 30, 1996, selling and administrative expenses were RMB 81,776,073 or 13.0% of net sales, consisting of selling expenses of RMB 55,016,280 and general and administrative expense of RMB 26,759,793. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China, and have been incurred in conjunction with the increase in the production capacity of Zhaoqing Brewery and the increase in sales volume. For the six months ended June 30, 1996, the Company recorded an allowance for doubtful accounts of RMB 1,330,000 to provide for estimated losses on accounts receivable for the period. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Zhaoqing Brewery's production of Pabst Blue Ribbon beer in April 1995, and has incurred most of the selling expenses since that date. General and administrative costs include the costs associated with the operation of the Company's executive offices, and the legal and accounting costs associated with the operation of a public company. As a result of softening consumer demand and increasing competition from foreign premium brand beers, the Company is implementing a substantially expanded advertising and promotional program in 1996 in order to stimulate consumer demand and maintain the market position of Pabst Blue Ribbon beer in China. Interest Expense: For the six months ended June 30, 1996, interest expense increased by RMB 8,463,917 or 194.0% to RMB 12,825,652, as compared to RMB 4,361,735 for the six months ended June 30, 1995. Interest expense increased in 1996 as compared to 1995 as a 19 result of the increase in bank loans, capital lease obligations and amounts payable to Guangdong Blue Ribbon as a result of its advances for the expansion of Zhaoqing Brewery. Operating Income: For the six months ended June 30, 1996, operating income was RMB 17,430,415 or 2.8% of net sales. For the six months ended June 30, 1995, operating income was RMB 1,454,845 or 1.1% of net sales. Income Taxes: For the six months ended June 30, 1996, income tax expense was RMB 500,000. Although the Company's operations in China were subject to a tax holiday in 1996, deferred income taxes of RMB 500,000 were recorded for the six months ended June 30, 1996 as a result of temporary timing differences with respect to accelerated depreciation of property, plant and equipment during the tax exemption period. For the six months ended June 30, 1995, no income tax expense was incurred. Net Income: As a result of the decreased sales and earnings of Noble Brewery, increased selling expenses incurred by the Marketing Company, and increased interest expense, net income decreased to RMB 8,672,394 for the six months ended June 30, 1996, as compared to RMB 10,209,362 for the six months ended June 30, 1995. Noble Brewery: - ------------- Three Months Ended June 30, 1996 and 1995 - Sales: For the three months ended June 30, 1996 and 1995, net sales were RMB 180,540,618 and RMB 131,295,743, respectively. Gross Profit: For the three months ended June 30, 1996 and 1995, gross profit was RMB 33,853,144 or 18.8% of net sales and RMB 31,495,076 or 24.0% of net sales, respectively. Selling and Administrative Expenses: For the three months ended June 30, 1996, selling and administrative expenses totalled RMB 9,463,105 or 5.2% of net sales, consisting of selling expenses of RMB 2,591,184 and general and administrative expenses of RMB 6,871,921. For the three months ended June 30, 1995, selling and administrative expenses totalled RMB 14,118,688 or 10.8% of net sales, consisting of selling expenses of RMB 8,097,001 and general and administrative expenses of RMB 6,021,687. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China and were incurred in conjunction with the increase in the production capacity of Noble Brewery. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Noble Brewery's production of Pabst Blue Ribbon beer in July 1995. Operating Income: For the three months ended June 30, 1996 and 1995, operating income was RMB 24,390,039 or 13.5% of net sales and RMB 17,376,388 or 13.2% of net sales, respectively. 20 Income Taxes: The two-year income tax holiday for Noble Brewery expired on December 31, 1995. In 1996, Noble Brewery is required to pay local income tax at half the normal rate of 33% on its profit as determined in accordance with PRC accounting standards applicable to Noble Brewery. Accordingly, RMB 5,374,807 has been recorded as income tax expense for the three months ended June 30, 1996. Net Income: For the three months ended June 30, 1996, net income increased to RMB 18,405,386 or 10.2% of net sales, as compared to RMB 16,375,226 or 12.5% of net sales for the three months ended June 30, 1995. Six Months Ended June 30, 1996 and 1995 - Sales: For the six months ended June 30, 1996 and 1995, net sales were RMB 342,594,136 and RMB 362,873,489, respectively. Gross Profit: For the six months ended June 30, 1996 and 1995, gross profit was RMB 69,881,713 or 20.4% of net sales and RMB 90,081,114 or 24.8% of net sales, respectively. Selling and Administrative Expenses: For the six months ended June 30, 1996, selling and administrative expenses totalled RMB 24,458,916 or 7.1% of net sales, consisting of selling expenses of RMB 7,244,455 and general and administrative expenses of RMB 17,214,461. For the six months ended June 30, 1995, selling and administrative expenses totalled RMB 37,119,861 or 10.2% of net sales, consisting of selling expenses of RMB 18,959,431 and general and administrative expenses of RMB 18,160,430. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China and were incurred in conjunction with the increase in the production capacity of Noble Brewery. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Noble Brewery's production of Pabst Blue Ribbon beer in July 1995. Operating Income: For the six months ended June 30, 1996 and 1995, operating income was RMB 45,422,797 or 13.3% of net sales and RMB 52,961,253 or 14.6% of net sales, respectively. Income Taxes: The two-year income tax holiday for Noble Brewery expired on December 31, 1995. In 1996, Noble Brewery is required to pay local income tax at half the normal rate of 33% on its profit as determined in accordance with PRC accounting standards applicable to Noble Brewery. Accordingly, RMB 9,773,607 has been recorded as income tax expense for the six months ended June 30, 1996. Net Income: As a result of decreased sales and gross margin, only partially offset by decreased selling expenses, and increased income taxes, net income decreased to RMB 21 35,168,171 or 10.3% of net sales for the six months ended June 30, 1996, as compared to RMB 49,441,195 or 13.6% of net sales for the six months ended June 30, 1995. Consolidated Financial Condition - Six Months Ended June 30, 1996: Liquidity and Capital Resource - For the six months ended June 30, 1996, the Company's operations utilized cash resources of RMB 18,118,903. The Company's cash balance increased by RMB 14,218,255 to RMB 71,666,560 at June 30, 1996, as compared to RMB 57,448,305 at December 31, 1995. The Company's net working capital deficit decreased by RMB 3,621,884 to RMB 101,177,437 at June 30, 1996, as compared to RMB 97,555,553 at December 31, 1995, and the Company's current ratio at June 30, 1996 was 0.78: 1, as compared to 0.77: 1 at December 31, 1995. The Company's inventories increased by RMB 41,141,339 or 72.4% to RMB 97,980,140 at June 30, 1996, as compared to RMB 56,838,801 at December 31, 1995. Such increase resulted from the expansion of production to meet the growth in market demand for beer products, and consisted primarily of an increase in finished goods in order to satisfy expected market demand during the peak season from July to September. The amounts due from related companies mainly represented receivable balances from Guangdong Blue Ribbon and its affiliated companies. The amounts due from related companies decreased by RMB 39,219,884 or 84.5% to RMB 7,191,895 at June 30, 1996, as compared to RMB 46,411,779 at December 31, 1995. The decrease was primarily due to the increase in payments by Guangdong Blue Ribbon and the increase in transaction volume with other related companies under normal operating levels during the period. The Company's accounts payable and accrued liabilities balance increased by RMB 74,115,272 or 131.7% to RMB 130,394,453 at June 30, 1996 as compared to RMB 56,279,181 at December 31, 1995. Such increase was mainly due to the increase in purchases of raw materials and packing materials in anticipation of the expected peak season in sales and production from July to September, and the increase in accrued expenses as a result of the expansion of production and operating activities. The Company's principal shareholder, Oriental Win, and Guangdong Blue Ribbon, a related party, have undertaken to provide continuing financial support to the Company, as described below. The conversion and expansion of Zhaoqing Brewery has required substantial capital to finance the costs of expansion and to support substantially higher sales levels. Guangdong Blue Ribbon has provided and committed to provide Zhaoqing Brewery a line of credit, or to otherwise arrange financing, sufficient to finance the purchase of new machinery and equipment in connection with the planned expansion of Zhaoqing Brewery to an annual production capacity of 100,000 metric tons of beer. For the six months ended June 30, 1996, additions to property, plant and equipment in connection with the planned expansion of Zhaoqing Brewery to an annual production capacity 22 of 100,000 metric tons of beer aggregated RMB 46,122,765 and were financed by advances under the line of credit from Guangdong Blue Ribbon, and other sources of working capital. In addition, during the six months ended June 30, 1996, other capital expenditures relating to the installation and final testing of machinery and equipment and the related construction costs at Zhaoqing Brewery aggregated RMB 4,558,883, and various other additions to property, plant and equipment aggregated RMB 1,571,923. The Company anticipates that additional capital expenditures in connection with the continuing expansion of Zhaoqing Brewery during the remainder of 1996 will be minimal. During the six months ended June 30, 1996, Zhaoqing Brewery acquired undeveloped land near the existing plant site with a total area of 51,034 square metres for future expansion purposes. The total capital expenditures incurred in this regard during the six months ended June 30, 1996 were RMB 9,562,205, which included the acquisition cost of the land and related site preparation costs. The Company anticipates that additional capital expenditures in connection with the development of the land during the remainder of 1996 will be approximately RMB 10,000,000. During the six months ended June 30, 1996, the Company increased its short- term bank borrowings by RMB 3,500,000, resulting in net short-term bank borrowings outstanding at June 30, 1996 of RMB 36,074,400. Oriental Win and Guangdong Blue Ribbon are providing continuing financial support to the Company. The existing loan payable to Oriental Win was incurred in connection with the acquisition of High Worth JV by Holdings and totaled RMB 73,794,948 at June 30, 1996, equivalent to approximately USD 8,866,000. The loan is denominated in United States Dollar, is unsecured, interest free and is not due and payable unless alternate long-term debt or equity funds are available to the Company. The Company anticipates that its operating cash flow, combined with cash on hand, bank lines of credit and other external credit sources, and the line of credit and other credit facilities provided by affiliates or related parties, are adequate to satisfy the Company's working capital requirements for the fiscal year ending December 31, 1996. In order to finance the continuing capital requirements of the Company subsequent to the completion of the Zhaoqing Brewery expansion, the Company has begun negotiations to arrange for long term bank or lease financing. In addition, the accelerated development or acquisition of additional brewing facilities may require the use of long term borrowing or equity financing by the Company. Inflation and Currency Matters - In recent years, the Chinese economy has experienced periods of rapid economic growth as well as high rates of inflation, which in turn has resulted in the periodic adoption by the Chinese government of various corrective measures designed to regulate growth and contain inflation. Since 1993, the Chinese government has implemented an economic program designed to control inflation, which has resulted in the tightening of working capital available to Chinese business enterprises. The success of the Company depends in substantial part on the continued growth and development of the Chinese economy. 23 Foreign operations are subject to certain risks inherent in conducting business abroad, including price and currency exchange controls, and fluctuations in the relative value of currencies. Changes in the relative value of currencies occur periodically and may, in certain instances, materially affect the Company's results of operations. Zhaoqing Brewery and Noble Brewery conduct virtually all of their business in China and, accordingly, the sale of their products are settled primarily in RMB. As a result, continued devaluation of the RMB against the USD will adversely affect their financial performance when measured in USD, and may have material adverse effects upon the results of operations and financial position of the Company. In addition, a significant portion of revenues will need to be converted into USD to meet foreign currency obligations. Although prior to 1994 the RMB experienced significant devaluation against the USD, the RMB has remained fairly stable from 1994 to present. The unified exchange rate was US$1.00 to RMB8.65 at December 31, 1993, RMB8.45 at December 31, 1994, RMB8.32 at December 31, 1995, RMB 8.34 at March 31, 1996 and RMB 8.32 at June 30, 1996. 24 PART II. OTHER INFORMATION - --------------------------- ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 27 Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K - Three Months Ended June 30, 1996: None. 25 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CBR BREWING COMPANY, INC. ---------------------------- (Registrant) Date: August 14, 1996 By /s/ JOHN Z. LI ------------------------- John Z. Li President and Director (Duly authorized officer) Date: August 14, 1996 By /s/ GARY C. K. LUI ------------------------- Gary C. K. Lui Chief Financial Officer (Chief Financial Officer) 26 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 8,610,664 0 19,951,218 0 11,772,215 42,291,770 29,495,679 0 94,788,306 54,448,137 2,991,384 0 0 820 16,345,337 94,788,306 75,836,914 75,836,914 63,917,355 63,917,355 0 0 1,540,989 572,452 60,075 1,041,979 0 0 0 1,041,979 .13 0
-----END PRIVACY-ENHANCED MESSAGE-----